UPDATE 2-Canada's HBC to form real estate joint ventures, stock soars

TORONTO, Feb 25 (Reuters) - Canadian retailer Hudson’s Bay Co said on Wednesday it has agreed to form two real estate joint ventures that would cut its debt by about C$1.1 billion ($885.60 million) and pave the way for an initial public offering or alternate transaction.

The separate deals with two real estate investment trusts, or REITs, U.S.-based Simon Property Group Inc and Canada’s RioCan Real Estate Investment Trust, sent HBC’s shares soaring more than 22 percent to C$27.15 on the Toronto Stock Exchange.

HBC will contribute real estate assets, signing long-term leases so it can continue to operate its stores. The REITs will invest in the new ventures in return for equity stakes. HBC valued the U.S. deal at $1.8 billion, and the Canadian venture at C$2 billion.

“We have put ourselves in a position and have structured the transaction so that we can go ahead with an IPO anytime that we chose,” said HBC Executive Chair Richard Baker in an interview. “We are looking to ... acquire additional properties and diversify our holdings prior to doing an IPO.”

The joint ventures will scout for Canadian, U.S. and international growth opportunities, though Baker declined to give details on potential properties they are considering.

The real estate deals comes as Target Corp prepares to exit Canada, vacating some 14.7 million square feet in leased retail estate that the U.S. retail giant is looking to sell. HBC sold the original leases to Target in 2011 for C$1.8 billion.

Baker said there is an appetite for some of the Target properties and that the Canadian joint venture with RioCan would look at the portfolio.

The Canadian partnership can initiate an IPO after three years, while the U.S. venture can launch a public offering after five years.

This is HBC’s latest move to bring value to its lucrative real estate portfolio, which it estimates is worth C$9.2 billion.

Under the RioCan agreement, HBC will contribute 10 owned or ground-leased properties into the new joint venture, including its flagship properties in Vancouver, Calgary, Ottawa, and Montreal. HBC will contribute 42 owned or ground-leased properties in the Simon Property Group deal.

A centuries-old company with roots in the fur trade, HBC owns U.S. department store chains Lord & Taylor and Saks Fifth Avenue, Hudson’s Bay department stores in Canada, and Canadian housewares chain Home Outfitters.